Radojko LUKIC Dragan 2VOJTESKI KLJENAKmer.ase.ro/files/2019_2/4-2.pdf · 2019. 12. 15. · Radojko LUKIC, Dragan VOJTESKI KLJENAK 96 costs of trading companies in Serbia (according

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The Analysis of the Interest Cost of the Trading Companies in Serbia

Radojko LUKIC1

Dragan VOJTESKI KLJENAK2

____________________________________________________________________________

ABSTRACT

Interest costs are a component of operational costs of trading companies. They are covered from

the margin. Their size varies depending on the interest rate, foreign exchange rate, investment

management efficiency, financial indebtedness, sales and other controlled and uncontrolled

determinants. This paper examines the dynamics and factors of the size of the costs of interest

rates of trade companies in Serbia for the period 2013 – 2017. The empirical results of the

research show a continuous reduction of the interest costs in the last years of the analyzed

period. This had a positive effect on the performance of trade companies in Serbia.

KEYWORDS: interest costs, financial indebtedness, inventory management, liquidity,

efficiency, profitability.

JEL CLASSIFICATION: L81, M31, M41, O32

___________________________________________________________________________

1. INTRODUCTION

Interest costs become an increasingly important component of total – operating costs of trading

companies. In view of this, they are the subject of research in this paper, with particular

reference to trade companies in Serbia. The purpose of the research is to comprehensively

examine the factors of the dynamics of the size of the interest costs of trading companies in

Serbia. This should enable the most efficient management of interest costs in order to improve

the performance of trading companies in Serbia in the future, in what we see the scientific and

professional contribution of this paper.

As is well known, there is extensive literature that deals with the general problem of measuring

the significance of gross operating margin (earnings before interest, taxes, depreciation and

amortization - EBITDA, and earnings before interest and tax EBIT) in financial reporting for the

needs of the most efficient company management (Sui, 2017), which includes interest. In this

context, the interest coverage ratio (EBIT / interest rate) is analyzed in particular. However, it is

significant that a smaller number of published comprehensive papers are devoted to the

specificities of gross operating margin analysis, interest coverage ratio in trading companies

(Berman, 2013; Calva, 2017; Carstea et al., 2017; Corona, 2014; Gülşah et al., 2016; Hoe, 2017;

Ko et al., 2017; Levy, 2014; Manini, 2017; Špička, 2016; Susmus, 2017; Tan, 2016). This

1 University of Belgrade Faculty of Economics, Republic of Serbia, E-mail: [email protected] 2 Faculty of Business Economics and Entrepreneurship, Belgrade, Republic of Serbia, E-mail: [email protected]

Management and Economics Review Volume 4, Issue 2, 2019

93

particularly applies to literature in Serbia (Lukic, 2017a, b), that is, as far as we know, no work

has been published so far as a whole on the issue of the importance of measuring and analyzing

gross operational margin and, in that context, the cost of interest in trading companies in Serbia.

This emptiness should be, to a certain extent, filled with this paper, which is dedicated to the

complex analysis of the factor of the interest costs size, as a component of the gross operating

margin, what also gives the reflection of its scientific and professional contribution.

The basic hypothesis of research in this paper is that efficient cost management, primarily by the

application of modern concepts, significantly contributes to improving the performance of

trading companies. This fully applies to interest costs, especially in the conditions of the

financial crisis. Acknowledgement of key determinants of size is a prerequisite for efficient

management of interest costs. By applying the certain methodology in this paper we explore the

determinants of interest costs size of trading companies in Serbia.

In conducting the research in this paper we used the methodology based on comparative analysis,

financial analysis, ratio analysis and the application of the strategic profit model. To a certain

extent, the statistical analysis was also used.

In order to conduct the research in this paper we collected empirical data from the Agency for

Business Registers of the Republic of Serbia. Furthermore, empirical data were also collected

from financial statements of selected retail chains and their websites (CSI Market company). For

trade companies in Serbia, empirical data were "produced" according to a unique methodology,

so they can be comparable internationally and, in this respect, there are no restrictions

whatsoever.

2. IMPORTANCE OF TRADE COMPANIES IN SERBIA

The importance of trading companies will be envisaged through participation of the 100 largest

companies in Serbia, in respect to their business revenues. Table 1 shows the participation of

wholesale and retail trade companies in the 100 largest companies, considering their business

revenues in 2017.

Table 1. Participation of trade companies in the 100 largest companies according

to business revenues in Serbia

Participation in 100 largest companies – according

to operating revenues in 2017, (%)

Wholesale 5.3

Nelt Co. 0.8

Phoenix Pharma 0.4

Mercata 0.4

Other wholesale companies 3.3

Retail 3.6

Delhaize Serbia 1.0

Mercator-S 0.9

MOL Serbia 0.4

Lukoil Serbia 0.3

Other retail companies 1.0

Source: Agency for Business Registers of the Republic of Serbia

Radojko LUKIC, Dragan VOJTESKI KLJENAK

94

The data in the table show that the wholesale companies participated in the 100 largest

companies according to business revenues in Serbia in 2017 with 5.3% and in retail trade with

3.3%. Observation of individual trading companies' data shows that the largest share was

registered with Delhaize Serbia and Mercator-S. The share itself reflected on the size of the costs

(including interest) and revenues, that is – the performance of trading companies in Serbia.

3. DYNAMICS OF THE SIZE OF INTEREST COSTS OF TRADING COMPANIES IN SERBIA

Numerous factors influence on the size of interest costs in trading companies, such as: bank

interest rate, exchange rate, liquidity, financial indebtedness, efficiency and profitability. Their

effective control can be "optimized". Table 2 shows the dynamics of the interest rate and foreign

exchange rates in Serbia.

Table 2. Interest rate (in %, annually) and dinar exchange rate against foreign currency

(average period) in Serbia

Reference interest rate EURO

2013 December 9.50 114.6421

2014 December 8.00 120.9583

2015 December 4.50 121.6261

2016 December 4.00 123.4723

2017 December 3.50 118.4727

2018 October 3.00 118.3198 (2018 November)

Source: National Bank of Serbia

The data in the given table show that in the observed period the reference interest rate decreased

from year to year. The exchange rate of the dinar against the euro is almost stable. This has a

positive effect on the movement of interest costs, net interest costs of all companies in Serbia,

including trade companies.

Net interest costs are determined by the formula:

Net interest costs = Interest costs – Interest income

Table 3 shows parallel between the net interest costs in processing industry and trade in Serbia

for the period 2013-2017.

Table 3. Net interest costs of processing industry and trade companies in Serbia Processing industry Trade

Interest

costs

(million

dinars)

Interest

revenue

(million

dinars)

Net interest

costs

(million

dinars)*

Interest

costs (in

% from

revenue)

Net

interest

costs (in

% from

revenue)*

Interest

costs

(million

dinars)

Interest

revenue

(million

dinars)

Net interest

costs

(million

dinars)*

Interest

costs (in

% from

revenue)

Net

interest

costs (in

% from

revenue)*

2013 38.049 9.950 28.099 1.72 1.27 23.864 9.401 14.463 0.82 0.50

2014 45.376 4.758 40.618 2.03 1.82 24.194 6.558 17.636 0.86 0.62

2015 35.745 4.299 31.446 1.48 1.30 19.758 4.737 15.021 0.66 0.50

2016 27.569 2.876 24.693 1.05 0.94 15.160 3.466 11.694 0.46 0.35

2017 28.188 2.283 25.905 0.99 0.91 15.383 3.056 12.327 0.44 0.36

Median 35745.0000 4299.0000 28099.0000 1.4800 1.3000 19758.0000 4737.0000 14463.0000 6600 5000

Note: *Calculations performed by the author. The Median was determined in the SPSS software

Source: Agency for Business Registers of the Republic of Serbia


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Interest costs, i.e. net interest costs, show a declining trend in Serbia, both in processing industry

and trade. They are lower than in trade in the United States (Table 4), what has positively

affected their overall performance.

Table 4. Interest Rates in US Trade Interest costs in % from net sales, 4Q 2017

Production 2.11

Wholesale 0.60

Retail 0.75

Source: U.S. Census Bureau, Washington, DC 20233 Quarterly Financial Report for Manufacturing, Mining, Trade,

and Selected Service Industries. Third Quarter 2018, Series QFR/1 8- Q3, Retrieved

fromhttps://www.census.gov/econ/qfr/mmws/current/qfr_pub.pdf (December 24, 2018)

The size of the interest cost was to a significant extent determined by investment activities. Table

5 and Figure 1 show the investment activity, measured by the size of assets, trade companies in

Serbia, for the period 2013 - 2017.

Table 5. Investments of trade companies in Serbia

Assets (million dinars) Index*

2013 2.160.474 98.8

2014 2.077.002 96.1

2015 2.234.368 107.5

2016 2.311.644 103.4

2017 2.393.721 103.5

(CAGR - Compound Annual

Growth Rate)*

2.07%

Note: *Calculations performed by the author

Source: Business Registers Agency of the Republic of Serbia

Figure 1. Investments of trade companies in Serbia

Investment activities of trading companies in Serbia have been intensified in recent years. The

annual growth rate of assets is 2.07%. This has significantly influenced on the size of the interest


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costs of trading companies in Serbia (according to the results of regression analysis: R2 =, 889,

F = 33.143, Sig. =, 010).

Table 6 shows the investment indicators of some member states of the European Union and

Serbia for 2016.

Table 6. Investment indicators of selected EU Member States and Serbia in 2016

Investments per employee

(thousand Euros)

Investment rate (investments /

added value per factor costs)

Germany 4.0 8.4

France 5.9 11.4

Croatia 2.1 10.9

Italy 4.0 10.1

Slovenia 4.9 14.1

Serbia* 2.1 18.0

Note: *Calculations performed by the author

Source: Euro stat and Statistical Yearbook of the Republic of Serbia 2018.

Technical equipment in Serbia's trade is therefore lower than in Germany, France, Italy and

Slovenia. It is at the same level as in Croatia. The investment rate in Serbia's trade is higher than

in the observed countries. In addition to its influence on the size of interest costs, it had a positive

impact on its overall performance.

4. LIQUIDIRY AND FINANCIAL INDEBTEDNESS AS A DETERMINANT OF THE SIZE OF THE INTEREST COSTS OF TRADING COMPANIES IN SERBIA

Liquidity and solvency (financial indebtedness) are important factors of the interest costs size in

trading companies. Liquidity is expressed through current liquidity in the following way: current

liquidity = working capital / short-term liabilities. It can also be expressed with the size of net

working capital, which are determined by the formula: Net working capital = Current assets -

Short-term liabilities. Net working capital represents a part of working capital financed from

long-term sources of funds. Financial indebtedness (as a measure of solvency) is most often

defined as the ratio between assets and capital, i.e.: financial indebtedness = assets / capital.

Table 7 shows the liquidity and financial indebtedness of trade companies in Serbia for the

period 2013 – 2017.

Table 7. Liquidity and financial indebtedness of trade companies in Serbia

Current assets

(million dinars)

Short-term

liabilities

(million dinars)

Net working

capital

(million

dinars)*

Current

liquidity*

Net

working

assets (in

% from

revenue)*

Financial

indebtedness

(assets /

capital)

2013 1.361.155 1.368.137 -6.982 0.99 -0.24 2.89

2014 1.318.032 1.299.874 18.158 1.01 0.64 2.82

2015 1.424.135 1.377.180 46.953 1.03 1.57 2.74

2016 1.503.476 1.478.299 25.177 1.02 0.76 2.68

2017 1.568.615 1.470.677 97.938 1.07 2.83 2.56

Median 1424135.0000 1377180.0000 25177.0000 1.0200 0.7600 2.7400


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Current assets

(million dinars)

Short-term

liabilities

(million dinars)

Net working

capital

(million

dinars)*

Current

liquidity*

Net

working

assets (in

% from

revenue)*

Financial

indebtedness

(assets /

capital)

(CAGR -

Compound

Annual

Growth

Rate)*

2.88% 1.46%

Note: *Calculations performed by the author. The Median was determined in SPSS software.


Liquidity and financial indebtedness of trading companies in Serbia have been lately improved.

The annual growth rate of working capital (2.88%) is higher than short-term liabilities (1.46%).

This had a favourable impact on their costs (including interest) and revenues, i.e. performance.

5. EFFICIENCY AS A DETERMINANT OF THE INTEREST COSTS SIZE IN TRADING COMPANIES IN SERBIA

Efficiency affects the size of interest costs in trading companies. This is particularly true of

inventory management, bearing in mind their dominant share in working capital. Table 8 shows

the efficiency of trading companies in Serbia for the period 2013-2017 (measured by the

turnover of assets, working capital, inventories and short-term liabilities).

Table 8. Efficiency of trade companies in Serbia

Assets turnover

ratio (revenues /

assets)

Working assets

turnover ratio

(revenues / working

assets)

Inventory turnover

ratio (revenues /

inventory)

Short-time

liabilities

turnover ratio

(revenues /

short-time

liabilities)

2013 1.34 2.12 6.00 2.11

2014 1.36 2.14 5.97 2.17

2015 1.34 2.10 5.57 2.17

2016 1.43 2.20 5.65 2.23

2017 1.44 2.20 5.62 2.34

Median 1.3600 2.1400 5.6500 2.1700

Note: Calculations performed by the author. The Median was determined in SPSS software.


According to all shown criteria, the efficiency of trade companies in Serbia has improved year

after year in the observed period. This has had a favourable effect on their performance,

including the size of interest costs.


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6. PROFITABILITY AS A FACTOR OF THE INTEREST COSTS SIZE OF TRADING COMPANIES IN SERBIA

In addition to liquidity, financial indebtedness, efficiency, profitability is also a factor in the

interest cost of trading companies. In this paper, it is presented as: return on sales = net profit /

sales; return on assets = net profit / assets; and return on equity = net profit / equity.

An integrated approach to profitability analysis is based on a strategic profit model. It shows key

determinants of profitability, by which effective control it can be significantly improved.

In order to measure the profitability of trading enterprises in Serbia, we used the strategic profit

model, and it is formulated as follows:

Return on assets = 𝑁𝑒𝑡𝑝𝑟𝑜𝑓𝑖𝑡

𝑆𝑎𝑙𝑒𝑠𝑥

𝑆𝑎𝑙𝑒𝑠

𝐴𝑠𝑠𝑒𝑡𝑠

Return on equity = 𝑁𝑒𝑡𝑝𝑟𝑜𝑓𝑖𝑡



𝐴𝑠𝑠𝑒𝑡𝑠𝑥

𝐴𝑠𝑠𝑒𝑡𝑠

𝐶𝑎𝑝𝑖𝑡𝑎𝑙

Gross margin return on inventory = 𝐺𝑟𝑜𝑠𝑠𝑚𝑎𝑟𝑔𝑖𝑛



𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠

Table 9 presents the strategic profit model of trade companies in Serbia for the period 2013 -

2017.

Table 9. Analysis of the efficiency and profitability of trade companies

in Serbia based on the strategic profit model Return on assets

Return on assets

(net profit /

assets), (%) =

Return on sales (net

profit / revenues),

(%) x

Assets turnover ratio

(revenues / assets)

2013 4.15 3.10 1.34

2014 3.81 2.81 1.36

2015 4.58 3.42 1.34

2016 4.41 3.08 1.43

2017 5.29 3.67 1.44

Median 4.4100 3.1000 1.3600

Return on capital

Return on capital

(net profit /

capital) =

Return on sales (net

profit / revenues),

(%) x

Assets turnover ratio

(revenues / assets)

Financial

indebtedness

(assets / capital)

2013 12.01 3.10 1.34 2.89

2014 10.77 2.81 1.36 2.82

2015 12.53 3.42 1.34 2.74

2016 11.84 3.08 1.43 2.68

2017 13.58 3.67 1.44 2.56

Median 12.0100 3.1000 1.3600 2.7400


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Return on inventory

Return on

inventory (gross

margin /

inventory), (%) =

Return on sales

(gross margin /

revenues), (%) x

Inventory turnover

ratio (revenues /

inventory)

2013 142.66 23.01 6.20

2014 145.78 23.59 6.18

2015 136.58 23.63 5.78

2016 136.23 23.57 5.78

2017 139.49 24.05 5.80

Median 139.4900 23.5900 5.8000

Note: Calculations performed by the author. The median was determined in SPSS software.


The data in the given table show improved profitability of trade companies in Serbia in 2017

compared to the previous year according to all the presented criteria. Along with other factors it

had a favourable effect on their performance, i.e. on the interest costs. The impact of interest

costs on the return on assets of trade companies in Serbia (R2 = 0.7001) is significant.

7. THE RATIO OF INTEREST COVERAGE OF TRADING COMPANIES IN SERBIA

The significant indicator for managing interest costs is the ratio of interest coverage. Interest

coverage ratio is determined as the ratio between earnings before interest and taxes (EBIT) and

interest, i.e.

𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡𝑐𝑜𝑣𝑒𝑟𝑎𝑔𝑒𝑟𝑎𝑡𝑖𝑜 = 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠𝑏𝑒𝑓𝑜𝑟𝑒𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡𝑎𝑛𝑑𝑡𝑎𝑥𝑒𝑠

𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡

It shows how many times the interest is covered by earnings before interest and taxes, i.e.

provides information on what are the possibilities to cover interest from the realized earnings

before interest and taxes. There is no "solid" standard for this ratio, according to some estimates

it should be between 3 - 7 and more. It is considered that this ratio is at a satisfactory level, if it

increases from year to year (which is achieved by reducing interest through repayment of loans,

by not taking new loans and with an increase in earnings before interest and taxes). Weakness is

considered to be that it does not say anything about the effects of the principal on the repayment

of debts.

Table 10 shows earnings before interest and taxes as a component of interest coverage ratio of

trading companies in Serbia.


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Table 10. Earnings before interest and taxes of trading companies in Serbia

Net profit

(million

dinars)

interest

(million

dinars)

Tax

(million

dinars)

Earnings

before

interest and

tax

(million

dinars)*

Earnings

before

interest and

tax

per

employee

(thousand

dinars)*

Earnings

before

interest

and tax

(in %

from

revenue)*

2013 89.730 23.864 10.647 124.241 643.036 4.29

2014 79.234 24.194 9.494 112.922 590.682 4.00

2015 102.303 19.758 13.855 135.916 694.792 4.54

2016 102.002 15.160 16.115 133.277 646.686 4.03

2017 126.734 15.383 17.496 159.613 767.296 4.62

Descriptive

Statistics

Minimum 79234.00 15160.00 9494.00 112922.00 590.68 4.00

Maximum 126734.00 24194.00 17496.00 159613.00 767.30 4.62

Mean 100000.6000 19671.8000 13521.4000 133193.8000 668.4984 4.2960

Std. Deviation 17753.29704 4381.27860 3432.11382 17295.15775 66.39244 0.28413

Valid N

(listwise) 5

Global retail

Earnings

before

interest

and tax

(in % from

revenue)

Tesco 1.26

Carrefour 1.80

Ahold Delhaize 7.67

Note: *Calculations performed by the author. Descriptive statistics were made in the SPSS software.

Source: Serbian Business Registers Agency, Annual Report Tesco, Carrefour, Ahold Delhaize (2017)

The data in the given table show that on average, earnings before interest and taxes in

percentages of revenues in trade companies of Serbia amount to 4.10%. Productivity measured

by the ratio between earnings before interest and taxes and employees in Serbia's trading

companies increased from year to year over the observed period, and on average it amounted to

668.4984 thousand dinars. This positively reflected on the size of the interest coverage ratio,

which is above the standard.

Earnings before interest and taxes can also be taken as a component of a strategic profit model.

For the purpose of illustration, in Table 11, a strategic profit model is presented in this form for

trading companies in Serbia for 2017.


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Table 11. Strategic profit model with component of earnings before interest and taxes of

trading companies in Serbia, 2017 Return on assets

2017 Return on assets

(EBIT / assets) =

Return on sales

(EBIT / sales) x

Assets turnover

ratio (revenues /

assets)

6.65 4.62 1.44

Return on capital

2017 Return on capital

(EBIT / capital) ) =

Return on sales

(EBIT / sales) x

Assets turnover

ratio (revenues /

assets)x

Financial

indebtedness (assets

/ capital)

17.03 4.62 1.44 2.56

Note: Calculations performed by the author. Instead of earnings before interest and taxes – EBIT in a strategic profit

model, EBITDA – earnings before interest, taxes, depreciation and depreciation can be also used as a component.


Measured in such manner, the data in the given table show that returns from assets and capital

are quite satisfactory in trade companies in Serbia, in comparison to the defined comparable

industry standards.

Table 12 shows the interest coverage ratio in processing industry and trade companies in Serbia

(with international comparisons).

Table 12. Interest coverage ratio of in processing industry and trading companies in Serbia Interest coverage ratio

Processing industry

2015 3.70

2016 6.72

Trade

2013 5.20

2014 4.67

2015 6.88

2016 8.89

2017 10.37

Median 6.8800

Comparison

CSIMarket: Wholesale Q4 2017 24.23

CSIMarket: Retail Q4 2017 12.13

Note: Calculations performed by the author

Source: Business Registers Agency of the Republic of Serbia and CSIMarket (Retrieved from

https://csimarket.com/) (December 14, 2018)

Data in the given table show that the ratio of coverage of interest rates of commercial enterprises

in Serbia in the last years of the observed period increased (the financial indebtedness measured

by the related assets and capital was decreasing). It is above a defined comparable industry

standard. The solvency of trade companies in Serbia is on the rise and at a satisfactory level,

taking into account the current general macroeconomic conditions of business. It is, however, at

a lower level in relation to the trade of countries of a developed market economy.

Table 13 and Figure 2 show the movement of the ratio between the interest coverage and the

financial indebtedness of trading companies in Serbia.

https://csimarket.com/


102

Table 13. Ratio of interest coverage and financial indebtedness

of trade companies in Serbia Interest coverage ratio

(EBIT / Interest)

Financial indebtedness (assets /

capital)

2013 5.20 2.89

2014 4.67 2.82

2015 6.88 2.74

2016 8.89 2.68

2017 10.37 2.56

(CAGR - Compound Annual

Growth Rate)

14.8 -2.4

Note: Calculations performed by the author


Figure 2. Interest rate coverage and financial indebtedness of trade companies in Serbia

The data in the given table show that the interest coverage ratio increased in the observed period

and the financial indebtedness of trading companies in Serbia decreased. This points to the

conclusion that their financial stability (i.e. solvency) has increased.

For the purpose of a more complex analysis in Table 14, descriptive statistics of interest

coverage and financial indebtedness of trade companies in Serbia are presented.


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Table 14. Descriptive statistics of the interest coverage ratio and financial indebtedness

of trade companies in Serbia

Descriptive Statistics

Mean Std. Deviation N

Interest coverage ratio

(EBIT / interest) 7.2020 2.41911 5

Financial indebtedness

(assets / capital) 2.7380 0.12736 5

Note: Calculation performed by the author, in the SPSS software

The data in the given table show that the interest coverage ratio of trading companies in Serbia is,

on average, 7.20. Therefore, it is above a defined comparable industry standard, which means

that, according to this indicator, the solvency of trading companies in Serbia is at satisfactory

level.

Data in Table 15. Show that there is, at the level of statistical significance, a strong negative

correlation between the interest coverage ratio and the financial indebtedness of trading

companies in Serbia.

Table 15. Correlation matrix of interest coverage ratio and financial indebtedness

of trading companies in Serbia

Correlations


(EBIT / interest)

Financial

indebtedness (assets /

capital)

Pearson Correlation


(EBIT / interest) 1.000 -.953


(assets / capital) -.953 1.000

Sig. (1-tailed)


(EBIT / interest) . .006


(assets / capital) .006 .

N


(EBIT / interest) 5 5


(assets / capital) 5 5

Note: Calculations performed by the author in SPSS software


104

For the purposes of regression analysis, the interest coverage ratio of trade companies in Serbia

will define the regression linear function as:

Yi = a + bXi + eii = 1, ..., n

where: Y = dependent variable (interest coverage ratio), X = independent variable (financial

indebtedness), and b = regression coefficients, and e = random error.

Table 16 and Figure 3 show the results of the regression analysis of the interest coverage ratio

and the financial indebtedness of trading companies in Serbia.

Table 16. Regression analysis of the interest coverage ratio and financial indebtedness

of trading companies in Serbia Model Summary b

Model R R

Square

Adjusted

R Square

Std. Error

of the

Estimate

Change Statistics Durbin-

Watson R Square

Change

F

Change df1 df2

Sig. F

Change

1 .953a .908 .877 .84677 .908 29.647 1 3 .012 2.391

a. Predictors: (Constant), Financial indebtedness (assets / capital)

b. Dependent Variable: interest coverage ratio (EBIT / interest)

ANOVAa

Model Sum of Squares df Mean Square F Sig.

1

Regression 21.257 1 21.257 29.647 .012b

Residual 2.151 3 .717

Total 23.408 4

a. Dependent Variable: interest coverage ratio (EBIT / interest)

b. Predictors: (Constant), Financial indebtedness (assets / interest)

Coefficients a

Model Unstandardized Coefficients

Standardized

Coefficients t Sig.

B Std. Error Beta

1

(Constant) 56.762 9.110

6.231 .008

Financial

indebtedness

(assets /

capital)

-18.101 3.324 -.953 -5.445 .012

a. Dependent Variable: Interest coverage ratio (EBIT / interest)

Note: Calculations performed by the author in SPSS software


105

The data in the given table show that the correlation between the interest coverage ratio and the

financial indebtedness of trading companies in Serbia (Adjusted R Square =.877; Sig. F Change

=.012) is strong at the level of statistical significance. There is no autocorrelation in the

regression analysis ratios (Durbin-Watson = 2.391). Regression coefficients are at the level of

statistical significance ((Constant) = Sig. .008; Financial indebtedness (assets / capital) = Sig.,

012). The regression linear function is therefore:

Y = 56.762 - 18.101X

Future expectations can be established through this regression.

Figure 3. Histogram of the interest coverage ratio of trading companies in Serbia

8. INTEREST RATES FOR SELECTIVE RETAILERS IN SERBIA

In order to make a more complex analysis of the issues discussed in this paper, we will look at

the dynamics of interest costs of Delhaize Serbia and Mercator-S. These two companies are the

most important retailers in Serbia (according to the realized business revenues in 2017). Table 17


106

shows the dynamics of interest costs of Delhaize Serbia and Mercator-S, and some global retail

chains for the purpose of international comparisons.

Table 17. Interest costs of selected retailers in Serbia Delhaize Serbia Mercator-S

Revenues

(million

dinars)

Interest

cost

(million

dinars)

Interest

costs (%

of

revenues)*

Interest

revenues

(million

dinars)

Net

interest

costs

(million

dinars)

Revenues

(million

dinars)

Interest

costs

(million

dinars)

Interest

costs (%

revenues)*

Interest

revenues

(million

dinars)

Net

interest

costs

(million

dinars)

2014 74.943 13 0,02 179 166 72.554 555 0,76 68 487

2015 77.383 11 0,01 239 228 112.229 975 0,87 83 892

2016 85.025 1 0,00 215 214 100.042 1.247 1,24 64 1.183

2017 94.884 1 0,00 410 409 90.747 1.314 1,45 12 1.302

Global

retailers

Interest

costs (%

from

revenues),

2017

Wal-Mart

Q4 2017

0.47

Target Q4

2017

0.92

Kroger Co.

Q4 2017

0.49

Tesco 1.56

Carrefour 0.40

Ahold

Delhaize

0.46

X5 Retail

Group

1.16

Note: *Calculation performed by the author

Source: Business Registers Agency of the Republic of Serbia, CSIMarket (Retrieved from https://csimarket.com/)

(December 14, 2018), and Annual Report Tesco 2017, Annual Report Carrefour 2017, Annual Report Ahold

Delhaize 2017, X5 Retail Group Annual Report 2017 (Retrieved from https://ar2017.x5.ru/en) (December 24, 2018)

The data in the given table show that the interest costs in Delhaize Serbia decreased in the

observed period, and increased with Mercator-S from year to year. In 2017, interest costs in

percentages of revenues are higher in the company Mercator-S, and lower in Delhaize Serbia in

comparison to the observed global retail chains (Wal-Mart, Target, Kroger Co.).

Table 18 shows the interest coverage ratio of selected retailers in Serbia in 2017.

Table 18. Interest coverage ratio of selected retailers in Serbia, 2017

Net profit

(million

dinars)

Interest

(million

dinars)

Tax (million

dinars)

Earnings

before interest

and tax (EBIT)

(million

dinars)*

Interest

coverage ratio

(Earnings

before interest

and tax /

Interest)*

Delhaize Serbia 4.264 1 237 4.502 4.502

Mercator-S (6851) 1.314 144 (5.393) (4.10)

https://csimarket.com/https://ar2017.x5.ru/en


107

Net profit

(million

dinars)

Interest

(million

dinars)

Tax (million

dinars)

Earnings

before interest

and tax (EBIT)

(million

dinars)*

Interest

coverage ratio

(Earnings

before interest

and tax /

Interest)*

Global retailers

Wal-Mart 9.08

Target 13.74

Kroger Co. 10.99

X5 Retail Group 3.77

Note: *Calculation performed by the author

Source: Business Registers Agency of the Republic of Serbia, CSIMarket (Retrieved from https://csimarket.com/)

(December 14, 2018) and X5 Retail Group Annual Report 2017 (Retrieved from https://ar2017.x5.ru/en) (December

24, 2018)

The data in the given table show that the interest coverage ratio of selected retailers in Serbia is

lower compared to the observed global retailers. This is, among other things, the result of more

unfavourable general conditions of business in Serbia. In addition to the unfavourable financial

structure, we need to add that there is also a lower level of implementation of modern concepts

of business as well as modern technology in the retail market of Serbia.

CONCLUSIONS

For trade companies in Serbia, there is a tendency of reducing interest costs. This was influenced

by numerous factors, among other things, by reducing the banking interest rate, a stable

exchange rate and improving general business conditions.

There is a tendency of increasing interest coverage ratio in trading companies in Serbia. It is

slightly higher than a defined comparable industry standard. In view of this, the solvency of

trading companies in Serbia is increasing.

According to the realized business income in 2017 in Serbia, the two most important retailers are

Delhaize Serbia and Mercator-S. The general conclusion is that their interest coverage ratio is

lower than with the global retailers such as Wal-Mart, Target and Kroger Co. This is due to the

fact that there are unfavourable structures of the capital of the observed retailers in Serbia.

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Radojko LUKIC Dragan 2VOJTESKI KLJENAKmer.ase.ro/files/2019_2/4-2.pdf · 2019. 12. 15. · Radojko LUKIC, Dragan VOJTESKI KLJENAK 96 costs of trading companies in Serbia (according